Tag Archives: SEC

Long before the existence of the Securities and Exchange Commission, medieval guilds and trading houses established common standards, accreditation agencies, and accounting rules that have evolved to the present day. The system of English common law has been evolving since the 12th century 1, and the accounting system used today was codified in 1495.2.

Voluntary oversight organizations are embraced by their participants because they provide executives with a value – they allow them to discover waste and fraud and advertise honesty to partners and customers. Unlike government regulatory bodies, they are flexible, efficient, and competitive. When the compliance costs of accounting rules exceed their value, or when lax controls lead to unethical or risky behavior, the markets embrace new standards. The Securities Act of 1933 and the Securities Exchange Act of 1934 did not begin the process of regulating markets, but nationalized much of the auditing market and turned it over to politicians and bureaucrats.

Regulations hinder competition and raise costs for investors

The SEC subsidizes politically connected corporations at the expense of smaller firms, hindering innovation and encouraging corruption. Established corporations lobby the government to create burdensome regulations that smaller investment funds and markets cannot afford, thus creating coercive monopolies that raise profits a few firms at the expense of investors.4 Government bodies like the SEC, the MSRB, the FTC, the USITC, the Fed, the Treasury, the IRS, the OTS, the MSRB, and the state attorney’s offices issue hundreds of thousands of laws, rules, opinions, bulletins, comment letters and threats and require numerous reports, statements, forms, notices, and approvals that investment firms and public companies must obey. 5 This creates an artificial scarcity of investment products that benefits large corporations and discourages savings and investment. Smaller companies cannot afford to raise money by issuing stock, and investors are forced to choose between public but expensive mutual funds and secretive and risky hedge funds with entry fees that only the rich can afford.

The SEC creates corruption

Rather than making Wall Street honest, regulatory agencies are the primary instruments of fraud and corruption on Wall Street. Politicians who control regulatory agencies have an incentive to use their power to extract benefits for themselves and their constituencies, rather than to keep markets honest and efficient. Power hungry politicians like Eliot Spitzer use the power of the SEC to go on crusades again innocent businessmen 6, and thus force regulatory bodies to hide the evidence of real corruption.7 By blocking outsiders from seeing its records, the agency is makes it harder for investors to discover real fraud.8

While Madoff stole $50 billion dollars under their noses, the SEC’s budget surpassed $900 million dollars, and grew at record rates during the two Bush administrations. In response to this outrageous case of nepotism and corruption, the government will likely increase its budget and staff once again.9

The SEC makes markets more volatile and risky

By banning crucial market functions like short selling10 and “insider trading” 11 the SEC hinders the market’s ability to react to new information, and makes markets more unpredictable and expensive.

The SEC cannot even oversee itself

While the SEC is charged with enforcing regulations like Sarbanes-Oxley, it consistently fails to control and report on its own processes and receives failing grades from the government’s own auditing body.12 This is not surprising – like any socialist organization, it has no incentive to be efficient or responsible to stockholders.

The chief source of fraud and corruption in the United States is not Wall Street, but Washington D.C.